Pavilions developers to get advance from city

Pavilions developers to get incentive early$3.3 million a non-interest loan until retail space is 70% leased

PURVA PATEL, HOUSTON CHRONICLE |
May 5, 2011

Developers of the Houston Pavilions will soon get the final $3.3 million the city promised as an incentive to get the downtown retail and office complex built.

The board of the Downtown Redevelopment Authority agreed, at a meeting this week, to release the funds as a loan, instead of a cash payment, and earlier than outlined in the original agreement with the developer.

Developers of the 560,000-square-foot complex asked for the money early because "a dollar is worth more today than it is tomorrow," said Phil Hudson, a spokesman for the Houston Pavilions.

Years ago, the area the redevelopment authority covered was expanded to include the Pavilions so the project could receive $14.3 million in reimbursements and grants from the tax increment reinvestment zone operated by the authority. Under a TIRZ, some of the property taxes collected are reinvested in the area.

The development cost a total of $180 million to build.

The release of the remaining TIRZ funds, under the original 2006 agreement with developers, is dependent on the project's retail space being 70 percent leased.

The mixed-use development's office component is 100 percent leased, and its retail component is 62 percent leased, Hudson said. Since the overall project is 81 percent leased, the redevelopment authority and developers of the Houston Pavilions had been discussing how the $3.3 million could be released.

Near the George R. Brown Convention Center, the three-block-long Pavilions, which opened in 2008, was designed to be a shopping and entertainment hub and make downtown Houston more of a nighttime and weekend destination.

Busy on weekends

Brandon Wells, a manager at Forever 21, noted traffic through the store is slow during the week except during the lunch hour. "But on weekends and when there's a convention, it's extremely busy," he said.

Houston Pavilions has been in and continues discussions and negotiations with several retail tenants that could take the project above the 70 percent threshold, Hudson said.

Interest-only loan

The board approved the release of the final funds in the form of an interest-only loan until the complex's retail space is 70 percent leased. Once the retail is 70 percent leased, the developers stop making the payments and keep the remaining loan proceeds.

The advance would be only for the current owners. If the property is sold before the 70 percent threshold is met, the new owners would have to repay the funds.

Upgrading the look

As part of the deal, the modified agreement will call for the developers to spruce up the streets as well as add awnings, outdoor eating areas and a Houston Police Department special operations storefront.

The city believes additional amenities and street improvements would make the site more attractive and "help entice more customers to explore the development's shopping and entertainment options," said Janice Evans, a spokeswoman for the city.

More visibility for police

The city also believes the Pavilions is a convenient spot for a police storefront and more visible than the former location on Preston, she said.

Naveen Jaggi, a local retail broker with CB Richard Ellis, noted that amenities to encourage outdoor eating and gathering are critical to creating a sense of space.

"For retail success, you need personality and a sense of energy," he said. "The city, it appears, feels as if The Pavilions is a bit sterile and needs to promote more outside and invigorating environment. The request for an HPD storefront is certainly not desirable from a landlord perspective, but the city wants to promote downtown retail as a safe environment for families and tourists, so the request is logical."

The developers of Houston Pavilions and the TIRZ board have agreed to work on the changes, Hudson said.

On Tuesday, the board also agreed to grant the developer's request for permission to protest its 2011 property taxes.